Masimo Reports Second Quarter 2014 Financial Results

Marketwired

IRVINE, CA--(Marketwired - Aug 7, 2014) -  Masimo (NASDAQ: MASI)

Q2 2014 Highlights (compared to Q2 2013):

  • Product revenue rose 3% to $133.5 million
  • Total revenue, including royalties, rose 3% to $140.9 million
  • Masimo rainbow® revenue was level at $11.6 million
  • SET® and rainbow® SET® unit shipments were 43,400 
  • Earnings per share was $0.24, including a $0.03 charge for a charitable contribution that was announced in May 2014

Masimo (NASDAQ: MASI) today announced its financial results for the second quarter ended June 28, 2014.

Second quarter 2014 product revenues rose 3% to $133.5 million, compared to $129.6 million for the second quarter of fiscal year 2013, and total revenue, including royalties, rose 3% to $140.9 million, up from $137.4 million for the second quarter of fiscal year 2013.

The company's worldwide direct product revenue in the second quarter of 2014 rose by 5% compared to the same period in 2013 and represented 85% of product revenue. OEM sales, which accounted for 15% of product revenue, declined by 6% compared to the same period in 2013. Revenue from sales of Masimo rainbow products was level at $11.6 million in the second quarter of 2014, compared to $11.5 million in the year-ago period. 

Net income for the second quarter of 2014 was $13.8 million, or $0.24 per diluted share, compared to net income of $17.0 million, or $0.30 per diluted share, in the second quarter of 2013. Net income for the second quarter of 2014 included an expense of $2.5 million, or $0.03 per share, for the previously announced contribution to the Masimo Foundation.

During the second quarter of 2014, the company shipped approximately 43,400 SET® pulse oximetry and rainbow® Pulse CO-Oximetry units, excluding handheld units, an increase of 2% compared to the same prior-year period. Masimo estimates its worldwide installed base as of June 28, 2014 to be 1,260,000 units, up 10% from 1,148,000 units as of June 29, 2013. 

Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, "Although our results for the second quarter were below our original Q2 expectations, it will not have a substantial impact on our full year financial guidance given that some rainbow® orders, including a large international rainbow® order, was shifted from Q2 into Q3.  Also, I am happy to report that in June, Masimo received FDA clearance for the full featured Root™ patient monitor, which includes IRIS™ connectivity hub and MOC-9™ for additional measurements, and our Nomoline™ capnography and anesthetic agent ISA side-stream monitors, again demonstrating our ability to innovate new technologies that can help advance patient care." 

As of June 28, 2014, Masimo's cash and cash equivalents were $97.1 million, compared to $95.5 million as of December 28, 2013. During first half of 2014, the company borrowed $75.0 million on its line of credit. This additional cash, along with net cash generated from operations, was used to repurchase approximately 2.0 million shares of stock for $49.2 million and to acquire the company's new worldwide headquarters building for approximately $56.0 million. 

2014 Financial Guidance

Masimo is providing updated 2014 financial guidance. Masimo now expects fiscal 2014 total revenue to be approximately $588 million to $593 million, including product revenue of approximately $560 million to $565 million and royalty revenue of approximately $28 million. In addition, Masimo now expects fiscal 2014 GAAP earnings per diluted share to range between $1.24 and $1.30. Each of the components of Masimo's guidance set forth above is an estimate only and actual performance could differ.

Conference Call
Masimo will hold a conference call today at 1:30 p.m. PT (4:30 p.m. ET) to discuss the results. A live webcast of the call will be available online from the investor relations page of the company's website at www.masimo.com. The dial-in numbers are (888) 520-7182 for domestic callers and +1 (706) 758-3929 for international callers. The reservation code for both dial-in numbers is 77154954. After the live webcast, the call will be available on Masimo's website through September 5, 2014. In addition, a telephonic replay of the call will be available through August 22, 2014. The replay dial-in numbers are (800) 585-8367 for domestic callers and +1 (855) 859-2056 for international callers. Please use reservation code 77154954.

About Masimo
Masimo (NASDAQ: MASI) is the global leader in innovative noninvasive monitoring technologies that significantly improve patient care-helping solve "unsolvable" problems. In 1995, the company debuted Measure-Through Motion and Low Perfusion pulse oximetry, known as Masimo SET®, which virtually eliminated false alarms and increased pulse oximetry's ability to detect life-threatening events. More than 100 independent and objective studies have shown that Masimo SET® outperforms other pulse oximetry technologies, even under the most challenging clinical conditions, including patient motion and low peripheral perfusion. In 2005, Masimo introduced rainbow SET® Pulse CO-Oximetry technology, allowing noninvasive and continuous monitoring of blood constituents that previously could only be measured invasively, including total hemoglobin (SpHb®), oxygen content (SpOC), carboxyhemoglobin (SpCO®), methemoglobin (SpMet®), and Pleth Variability Index (PVI®), in addition to SpO2, pulse rate, and perfusion index (PI). Additional information about Masimo and its products may be found at www.masimo.com.

Forward-Looking Statements
All statements other than statements of historical facts included in this press release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our expectations for full fiscal year 2014 total, product, rainbow and royalty revenues and GAAP earnings per share; our plan to announce multiple new products in 2014; our financial condition, results of operations and business generally; expectations regarding our ability to design and deliver innovative new noninvasive technologies and reduce the cost of care; and demand for our technologies. These forward-looking statements are based on management's current expectations and beliefs and are subject to uncertainties and factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to: our dependence on Masimo SET® and Masimo rainbow® SET® products and technologies for substantially all of our revenue; any failure in protecting our intellectual property exposure to competitors' assertions of intellectual property claims; the highly competitive nature of the markets in which we sell our products and technologies; any failure to continue developing innovative products and technologies; the lack of acceptance of any of our current or future products and technologies; obtaining regulatory approval of our current and future products and technologies; the risk that the implementation of our international realignment will not continue to produce anticipated operational and financial benefits, including a continued lower effective tax rate; the loss of our customers; the failure to retain and recruit senior management; product liability claims exposure; a failure to obtain expected returns from the amount of intangible assets we have recorded; the maintenance of our brand; the amount and type of equity awards that we may grant to employees and service providers in the future; our ongoing litigation and related matters; and other factors discussed in the "Risk Factors" section of our most recent periodic reports filed with the Securities and Exchange Commission ("SEC"), including our most recent Form 10-K and Form 10-Q, all of which you may obtain for free on the SEC's website at www.sec.gov. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Masimo, SET, Signal Extraction Technology, Improving Patient Outcome and Reducing Cost of Care... by Taking Noninvasive Monitoring to New Sites and Applications, rainbow, SpHb, SpOC, SpCO, SpMet, PVI are trademarks or registered trademarks of Masimo Corporation

   
MASIMO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in thousands)
 
   
    June 28, 2014     December 28, 2013  
ASSETS                
Current assets                
  Cash and cash equivalents   $ 97,092     $ 95,466  
  Accounts receivable, net of allowance for doubtful accounts     75,263       76,759  
  Royalties receivable     7,400       7,300  
  Inventories     58,284       56,813  
  Prepaid expenses     9,755       9,243  
  Prepaid income taxes     3,391       3,740  
  Deferred tax assets     16,713       19,636  
  Other current assets     4,135       2,841  
    Total current assets     272,033       271,798  
Deferred cost of goods sold     64,124       61,714  
Property and equipment, net     82,429       24,866  
Intangible assets, net     28,357       28,104  
Goodwill     22,260       22,793  
Deferred tax assets     22,543       22,565  
Other assets     7,012       6,822  
    Total assets   $ 498,758     $ 438,662  
LIABILITIES AND EQUITY                
Current liabilities                
  Accounts payable   $ 29,104     $ 28,004  
  Accrued compensation     23,612       29,486  
  Accrued liabilities     18,610       23,028  
  Income taxes payable     816       2,406  
  Deferred revenue     24,129       20,755  
  Line of credit and current portion of capital lease obligations     75,091       111  
    Total current liabilities     171,362       103,790  
  Deferred revenue     530       566  
  Capital lease obligations, net of current portion     150       225  
  Other liabilities     7,326       7,680  
    Total liabilities     179,368       112,261  
Commitments and contingencies                
Equity                
  Masimo Corporation stockholders' equity:                
    Common stock     55       57  
    Treasury stock     (132,606 )     (83,454 )
    Additional paid-in capital     280,576       273,129  
    Accumulated other comprehensive income     2,285       3,995  
    Retained earnings     169,176       132,742  
      Total Masimo Corporation stockholders' equity     319,486       326,469  
  Noncontrolling interest     (96 )     (68 )
      Total equity     319,390       326,401  
      Total liabilities and equity   $ 498,758     $ 438,662  
                 
                 
                 
MASIMO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited) (in thousands, except per share amounts)
 
   
    Three Months Ended     Six Months Ended  
    June 28,
2014
    June 29,
2013
    June 28,
 2014
    June 29,
2013
 
Revenue:                                
  Product   $ 133,493     $ 129,568     $ 265,725     $ 258,203  
  Royalty     7,430       7,854       15,012       15,161  
Total revenue     140,923       137,422       280,737       273,364  
Cost of goods sold     47,828       46,190       95,341       92,551  
Gross profit     93,095       91,232       185,396       180,813  
Operating expenses:                                
  Selling, general and administrative     61,347       54,173       117,469       106,446  
  Research and development     13,343       13,879       27,339       28,046  
Litigation award and defense costs     --       --       (8,010 )     --  
Total operating expenses     74,690       68,052       136,798       134,492  
Operating income     18,405       23,180       48,598       46,321  
Non-operating income (expense)     323       (238 )     523       (2,564 )
Income before provision for income taxes     18,728       22,942       49,121       43,757  
Provision for income taxes     4,776       8,294       12,678       12,707  
Net income including noncontrolling interest     13,952       14,648       36,443       31,050  
Net (income) loss attributable to the noncontrolling interest     (150 )     2,390       (9 )     2,416  
Net income attributable to Masimo Corporation stockholders   $ 13,802     $ 17,038     $ 36,434     $ 33,466  
                                 
Net income per share attributable to Masimo Corporation stockholders:                                
  Basic   $ 0.25     $ 0.30     $ 0.65     $ 0.59  
  Diluted   $ 0.24     $ 0.30     $ 0.63     $ 0.58  
                                 
Weighted-average shares used in per share calculations:                                
  Basic     55,876       56,440       56,290       56,840  
  Diluted     56,818       57,204       57,403       57,607  
                                   

The following table presents details of the share-based compensation expense that is included in each functional line item in the condensed consolidated statements of income (in thousands):

         
    Three Months Ended   Six Months Ended
    June 28,
2014
  June 29,
2013
  June 28,
2014
  June 29,
2013
Cost of goods sold   $ 133   $ 139   $ 242   $ 240
Selling, general and administrative     2,000     2,359     4,088     4,969
Research and development     475     479     878     1,181
Total   $ 2,608   $ 2,977   $ 5,208   $ 6,390
                         
   
   
MASIMO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
 
   
    Six Months Ended  
    June 28,
 2014
    June 29,
 2013
 
Cash flows from operating activities:                
  Net income including noncontrolling interest   $ 36,443     $ 31,050  
  Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities:                
    Depreciation and amortization     6,113       5,600  
    Share-based compensation     5,208       6,390  
    Loss on disposal of property and equipment     2       78  
    Provision for doubtful accounts     183       314  
    Provision for deferred income taxes     2,926       1,687  
    Income tax benefit from exercise of stock options granted prior to January 1, 2006     44       436  
    Excess tax deficit from share-based compensation arrangements     15       504  
    Changes in operating assets and liabilities:                
      Decrease in accounts receivable     1,233       569  
      (Increase) decrease in royalties receivable     (100 )     130  
      Increase in inventories     (1,616 )     (8,420 )
      Increase in deferred cost of goods sold     (2,424 )     (5,718 )
      Increase in prepaid expenses     (547 )     (1,092 )
      Decrease (increase) in prepaid income taxes     348       (3,383 )
      (Increase) decrease in other assets     (1,495 )     1,160  
      Increase in accounts payable     1,177       4,644  
      Decrease in accrued compensation     (5,731 )     (793 )
      Decrease in accrued liabilities     (4,365 )     (723 )
      Decrease in income taxes payable     (1,605 )     (1,261 )
      Increase in deferred revenue     3,339       1,000  
      (Decrease) increase in other liabilities     (354 )     231  
Net cash provided by operating activities     38,794       32,403  
Cash flows from investing activities:                
  Purchases of property and equipment     (62,062 )     (3,936 )
  Increase in intangible assets     (1,901 )     (2,154 )
Net cash used in investing activities     (63,963 )     (6,090 )
Cash flows from financing activities:                
  Borrowings under line of credit, net of repayments     75,000       --  
  Repayments of capital lease obligations     (95 )     (96 )
  Proceeds from issuance of common stock     2,209       897  
  Excess tax deficit from share-based compensation arrangements     (15 )     (504 )
  Repurchases of common stock     (49,152 )     (19,790 )
  Repurchases of equity by noncontrolling interest, net of equity issued     (38 )     --  
Net cash provided by (used in) financing activities     27,909       (19,493 )
Effect of foreign currency exchange rates on cash     (1,114 )     (301 )
Net increase in cash and cash equivalents     1,626       6,519  
Cash and cash equivalents at beginning of period     95,466       71,554  
Cash and cash equivalents at end of period   $ 97,092     $ 78,073  
Contact:
Investor
Eli Kammerman
(949) 297-7077
ekammerman@masimo.com

Media
Mike Drummond
(949) 297-7434
mdrummond@masimo.com
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